Ritesh (Jt Dir) (80 Points)
12 January 2012One buys / accumulates certain amount of gold as coins / bars. Then say after 10 yrs exchanges it for jewellery for daughter's wedding. What are the tax implications?
a. Will this be considered as selling of gold and then buying?
b. If it is a case where the time period is the same but marriage is not involved will the tax implications differ?
Raj Kumar
(Student)
(102 Points)
Replied 12 January 2012
Nitesh Gupta
(Articled Assistant)
(145 Points)
Replied 12 January 2012
(a) I think there will be capital gains.
Full value of Consideration = Fair Market Value of Jewellary received
Cost of Acquisition = Indexed cost of Acquisition
LTCG (taxable @ 20%)
(b) If no marriage is involved then also same implications.
Nitesh Gupta
(Articled Assistant)
(145 Points)
Replied 12 January 2012
(a) I think there will be capital gains.
Full value of Consideration = Fair Market Value of Jewellary received
Cost of Acquisition = Indexed cost of Acquisition
LTCG (taxable @ 20%)
(b) If no marriage is involved then also same implications.
Keval Ponkiya
(CA CS MBA(Fin.) M.Com. L.L.B.)
(223 Points)
Replied 12 January 2012
Yes Sir !!!
a. Its a very much sell as u r selling coins/bars.
b. Not at all differ sir, I think no relevance of marriage !!! Because if u gift it then arise and even its on the part of daughter.
suchit shah
(Dy. Manager(Finance & Accounts))
(208 Points)
Replied 12 January 2012
Mr. ritesh i differ from all the views above as in my opinion there will not be any Tax implication at all......................As the gold remains the gold ...... and one morething if u give it to ur daughter as a wedding gift then also there will not be any tax as the gift on marraige is exempt in the hands of receiver..............
CA Neil Ganatra
(Partner - Gautam Joshi & Co.)
(871 Points)
Replied 12 January 2012
It will be covered by Capital Gain. Value of consideration should be the amount which jeweller has deducted from value of new jewellery due to such exchange.
Eg. Original jewellery purchased for Rs. 10,000/-. New jewellery purchased for Rs. 50,000/- from which jeweller deducted Rs. 22,000/- for old jewellery exchanged.
Then in this case Rs. 12,000/- (22,000-10,000) shall be long term capital gain which will be charged @ 20%.
Whether it is purchased for marriage or not will not change the impact.
I think it is clear to you now.
Regards,
suchit shah
(Dy. Manager(Finance & Accounts))
(208 Points)
Replied 12 January 2012
Mr. neil i think it should be considered as the conversion of gold for gold only rather than considering it as the exchange of gold...................
CA Devender Chauhan
(Group Financial Accountant)
(1526 Points)
Replied 12 January 2012
Section 2(47) of the Income Tax Act, defines transfer in relation to a capital asset, and it includes
It is clear from the above extracts of the act that it will treated as transfer for the purpose of Capital Gain.
Hence the difference amount on conversion will be taxable as long term capital gain.
CA Neil Ganatra
(Partner - Gautam Joshi & Co.)
(871 Points)
Replied 12 January 2012
Dear Mr. Suchit,
As per the decision of Supreme Court in the case of CIT v. Rasiklal Maneklal (HUF) [1989] 177 ITR 198, an exchange involves the transfer of property by one person to another abnd receprocally the transfer of property by that other to the first person. There must be a mutual transfer of ownership of one thing for the ownership of another.
Even as per the definition of full value of consideration for the purpose of capital gain, consideration may be received in cash or in kind. if it is received in kind then fair market value of such assets is taken as full value of consideration.
I hope this is clear now. Still in case of any further confusion, I'll be happy to have discussion.
Thanks & Regards,
CA Neil Ganatra
099092 81384
suchit shah
(Dy. Manager(Finance & Accounts))
(208 Points)
Replied 12 January 2012
Agree with ur view Mr. neil ... , but i was jus taking a practicle view that Mr. ritesh can always say that he has converted his gold bar in to the jwellery and has paid only the service charges on it........... this is what is happening round the corner that people are getting jwellery for their gold bars n they are to pay only service charges.............can we take this way as the tax planning????
CA Neil Ganatra
(Partner - Gautam Joshi & Co.)
(871 Points)
Replied 12 January 2012
Sir,
Jeweller will always show this deduction in bill. So it's better not to take this view.
suchit shah
(Dy. Manager(Finance & Accounts))
(208 Points)
Replied 12 January 2012
Point noted Mr. neil.............. thanks for correcting ..................totally agree with ur views......................
Ritesh
(Jt Dir)
(80 Points)
Replied 12 January 2012
If this be the legal standing then why are Indians after gold / jewellery which their Daughter in Laws and Daughters will call old fashioned on their marriage and would like to exchange. Then might as well buy it then. A demand for an asset class that is making the gold prices dance in recent past.
Also if I gift coins / bars to my daughter then her cost indexed or otherwise, is 0 and will attract full tax if she sells / exchanges it without indexation benefit.
CAclubindia
